General Awareness Topic - E-Auction of Coal Blocks may ease out Imbroglio

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After the Supreme Court in its historic ruling declared the allocation of 214 coal blocks to the private sector by the government as arbitrary and illegal, government has decided to start the e-auction of coal blocks. In this regard, on October 21, 2014, the President of India promulgated the ordinance for e-auctioning the coal blocks to the private sector which can be put to captive use. This e-auction has to start before March 2014 as Supreme Court provided the grace period of six months to run the mines where production has already been initiated.

The new auction-based system will replace the earlier controversial policy of allotting coal blocks based on recommendations of a panel of bureaucrats, which the Supreme Court had struck down as arbitrary. The imbroglio imposed by the Supreme Court over the coal sector created waves of despair as coal is the single most important factor over which the substantial needs of energy sector of India depends.

Following this ordinance, state sector requirements including those of the central and state governments would be met through government dispensation route and coal mines would be allocated to PSUs like NTPC or state electricity boards.

The government will put sufficient coal blocks on e-auction for the private sector players who are into the cement, steel and power sectors. Being infamous for its opaqueness in the policies, government has assured that the e-auction process will be transparent and completed within four months with proceeds going entirely to the state governments where the mines are located. The biggest beneficiaries would be the Jharkhand, Odisha, West Bengal, Chhattisgarh, Madhya Pradesh, Maharashtra and Andhra Pradesh.

All companies, except those convicted by courts, will be allowed to participate in the auction and there will be no right of first refusal and all bidders will have to compete in the e-auction through reverse bidding. The mines given through e-auction will have end user clause where only power, cement and steel industries can bid. Only Indian private companies will allowed to bid while mines to the state owned companies will be directly allocated.

The provisions of the e-auction are definitely an improvement over the earlier provisions and are a step forward in removing the imbroglio. There is no element of doubt the e-auction process will also come in front of the court sooner or later but its provisions are less contentious than the earlier policy of no clear provisions. However, as far as the reform of coal sector is concerned, the desired goal is still far from the site.

India’s estimated coal reserves now stand at 301 billion tonnes, the fifth highest in the world, but companies still have to import as large number of mines remain unused. In India, only Coal India Limited (CIL) as the monopoly to mine and sell the coal in open market and the rest can only mine coal for their captive use. An important step towards the coal reform would be dismantling the monopoly of CIL which cannot produce the adequate coal domestically.

Though the ordinance allowing the e-auctioning of coal mines would improve the functioning but these changes cannot be called from any measure a major reform. The latest ordinance may remove the imbroglio imposed by the Supreme Court but it would not be able to answer the imbroglio imposed by the structural irregularities. Once the mess is cleared in the coal sector, government must go for the entire reform of the coal sector if we have to reform the energy sector.